1&1:Quarterly Results/2024 Q1

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Earnings Call Summary

1&1 Earnings Call

Video: Q1 2024 Earnings call | Q1 2024 Earnings Call Transcript.

Low-band spectrum

• They said they will continue with the mobile network rollout even if they didn't get the frequency.
• 1&1 views the 200-300k customer net additions in 2024 as realistic.
• If they don't get the low-band frequency, they will use the national roaming to ensure good indoor coverage, hence they will experience lower traffic which will impact the financial performance. "Then we will have to use national roaming to have a good indoor coverage which means that we would have lower traffic coverage and it would have an impact on the financials of the case but it is not a scenario for us to stop the rollout of the network because we have obligations out of the auction of 2019…" min 22
• They believe there will be a way that will enable them to have access to the low-band spectrum.
• They said spectrum leasing could be an option but no discussion with any operator regarding it at the moment.
• Without the low-band spectrum, they still expect 50% coverage (40-50%, but they are more on the upper side).
• With the low-band spectrum, they expect 60% coverage.
• The worst case scenario is an extension without obligation for other operators to provide access to them.
• They acknowledged the leaked BnetzA internal letter and said it mirrors their worst case scenario.

''There was last week a yellow press sort on the internet indicating a leaked agenda of the future meetings with the BnetzA and a lot of stuff have interpretation that also mirrors worst case scenario for our case. We are eager to experience what the BnetzA may deliver publicly but we are discussing only worst case scenarios in this situation." (min 1:04)

" The worst case scenario means there is an extension for the existing operators for free without an obligation giving us access to low-band," min 51

Migration

• They started with a significant number at the end of March.
• 1&1 said they are now close to optimum migration which is 50,000 migrations per day.
• Their current migration rate is between 20,000 to 40,000 per day.
• They migrate customers on 4 days per week.
• At the end of April, they had around more than 1 million customers in the network.
• 6-8 million migration is realistic scenario in 2024.
• Own network will lead to better offers and pricing.
• They haven't received any complaints on the migration.

Outlook

• They are guiding for 80-100k net customer additions in Q2 2024 aided by some things they changed in their offers.
• 1&1 view the 160 million EBITDA impact by startup costs in 2024 as reasonable (they don't expect it to be higher).
• They said EBITDA impact in Q2 will be high but they expect savings in the 2nd half due to migration of costumers to own network.
• EBITDA in Q2 will be close to that of Q1 but will improve in the 2nd half.
• The biggest part of capex will be finishing the two core data centres (expected to be completed in two months).
• They are comfortable with the 4% service revenue growth in 2024 aided by stable broadband contracts and monthly plan received this year.

Antenna sites

• They still target 3,000 sites at the end of 2024.
• The breakdown of antenna sites is currently 80% collogation and 20% PTS but in future PTS will be higher.
• They had 530 base stations at the end of Q1.
• 227 antenna sites are already connected with fibers.

Core business

• Customer additions was impacted by the migration (but they can't quantify it) and discounts offered by competitors . “The net ads in the first quarter of 2024 has been influenced by the start of the migration of customers into our own network as well as more aggressive sales offers in the first quarter in the discount market.” min 1

• They have seen aggressive offers but no reduction in pricing by competitors eg Deutsche Telecom and FreeNet.
• 1&1 said they don't see any opportunities for price increase at the moment.
• ARPU in the broadband segment was higher in Q1 2024 compared to the same period last year due to migration to tariffs with higher bandwidths.

Vodafone agreement

• They said they expect to finalize the contract in the next few weeks.
• Conversation with Vodafone is good.
• Reiterated that the contract signed last year is binding.
• They expect the corporation to kickoff in July, latest October.

United Internet Earnings Call

Spectrum allocation

• CFO Ralf Hartings said their default expectation is not to not get any access to the spectrum in the foreseeable future.
• Ralf things not getting any spectrum is kind of the worst-case scenario that could possibly be.
• Ralf maintained that their current view is to continue with the network buildout if they don't get the spectrum.

"I think Mark has also made it fairly clear as well as Oliver that our default expectation for spectrum is not to not get any access to spectrum in the foreseeable future. And I think you've asked a question whether if we would not get any, which is kind of the worst-case scenario that could possibly be, I think the team confirmed that we still have got our obligations, which we are in the need to fulfill as currently things stand. I’m not the Bundesnetzagentur. So I don't know if they are willing to change things or not. But as we stand here, that's kind of our current view."

Consolidation in the German market

• Referring to the recent total control of O2 Germany, CFO Ralf said they are currently not planning on any consolidation. He pointed out that they have a lot of money to invest in the network buildout which is their priority number one.
• He said he doesn't know if other people do.

"With regards to consolidation on the German market, well we don't--I don't think we plan on consolidating anyone personally. I don't know if any people do, but I guess you need to ask them this question. And look, never say never, I think was a movie once called, I don't know, okay, in all honesty. But I don't see anything pressing happening anyway. So I mean, yes, I can't tell you."

Management Guidance and Analysts Estimates

Management Guidance

Key Items	2024	Y/Y Growth
New Customer Contracts	200-300K
Service Revenue	€3.37 billion	4%
EBITDA	€720 million	10%
EBITDA 1&1 Mobile Network Segment	-€160 million	20.8%
Access Segment Revenue	€880 million	11.9%
Cash Capex	€380 million	28.6%
Network:
Antenna sites	3,000

Analysts Estimates

Key Items	Q1 2024	Y/Y Growth	2024	Y/Y Growth
Revenue	€1,031.9 million	1.1%	€4,207.1 million	2.7%
Service revenue	€822.3 million	4.2%	€3,358.8 million	3.6%
EBITDA	187.2 million	2.8%	€719.6 million	10.1%
EPS	€0.49	-7.5%	€1.71	-4.5%
Access Contracts	16.33 million	2.9%	16.53 million	1.7%
Mobile Internet contracts	12.31 million	4.3%	12.52 million	2.2%
Broadband contracts	4.01 million	-1.5%	4.01 million	0%
EBITDA 1&1 Mobile Network Segment	-€39.5 million	105.7%	-€160.5 million	21.2%
Capex (Cash-Capex)			-€379.5 million	28.3%
Free Cash Flow			-€48 million
Net adds
Access	70,000		271,000
Mobile	60,000		270,646
Broadband	0		0

Analysts Opinions

Low-band frequency could remain with existing users

• According to analyst Polo Tang of UBS and Ulrich Rathe of Bernstein, there are media reports that indicate the low-band frequencies could be passed onto the existing users.

1&1's Q1 2024 results could meet expectations

• Analyst Keval Khiroya of Deutsche Bank expects 1&1 to post results that meet expectations.

1&1 to show weak momentum in acquiring clients in Q1

• According to analyst Ulrich Rathe of Bernstein, 1&1 could show weak momentum in acquiring new clients in Q1.

Network insights

• Internet speed tests on 1&1 network conducted by Teltarif were positive.